Selling to the Government
Many governments finance public works projects through borrowing from the Multilateral Development Banks.
Government entities, institutions, and commercial enterprises must follow the provisions of Law 80 of October 31, 1993, which regulates purchases made and contracts entered into by the government and state industrial and commercial enterprises.
Under Law 80, Colombian government contracting agencies must select contractors through a public competitive bidding process, typically found on Colombia Compra Eficiente’s website. There are a few exceptions to this rule, which are clearly established in Article 24 of Law 80. The following are some exceptions for a direct contracting procedure:
(1) Contracts for minor amounts: minor amounts are expressed in multiples of the established Colombian legal minimum monthly salary (currently about US$ 270 without the additional benefits and/or compensation pay). A minor amount may range from 25 minimum monthly salaries to 1,000 minimum monthly salaries, depending on the annual budget of the contracting entity. For instance:
(a) If the annual budget of the contracting entity is less than or equal to 6,000 minimum monthly salaries, it is allowed to acquire goods and services under direct contract that do not exceed 25 minimum monthly salaries in value.
(b) If the annual budget of the contracting agency is equal to or exceeds 1,200,000 minimum monthly salaries, under direct contracts it may purchase goods and services that do not exceed 1,000 monthly salaries in value.
(2) Loan agreements: inter-agency administrative contracts, professional, scientific and technological services, and evident emergencies and
(3) Non-award: Whenever bidding is not awarded for reasons such as: lack of proposals submitted, when the bids do not meet the terms of reference or specifications, when there is only one bidder, when products originating in or destined to agriculture or livestock breeding are offered through legally organized commodities exchanges, and in contracts executed by state (government) entities for the rendering of health services.
In July 2007 the Colombian government issued Law 1150 which is an amendment to Law 80. The following are the most important changes to Law 80:
(1) Sets out four principles for contracting with the government via: (i) public tender, (ii) short list (iii) competitive examinations and (iv) direct contracting.
(2) Provides that the specifications should include the methodology for risk sharing within the contract.
(3) Develops the principle of objective selection, stating the criteria of how the contractor will be chosen. It eliminates experience, financial capacity, and organizational capacity as requirements for selection. These conditions will be taken into consideration for scoring purposes.
(4) Expands the possibilities of checking the conditions of the bidders through a National Bidders Registry (Registro Unico Empresarial or RUE).
(5) Requires the application of sound fiscal and functional principles when contracting with the State in addition to the rules already established by the State.
(6) Sets parameters for extension or adding up to 60 percent to concession contracts for public works regardless of the amount of investment.
Foreign individuals or companies not domiciled in Colombia or foreign private legal entities without a branch in Colombia that are interested in government contracts must appoint an agent or legal representative, domiciled in Colombia, who is duly authorized to bid on and execute the contracts as well as to represent the foreign enterprise in and out of court. They also must provide a copy of their registration with the corresponding registry in their country of origin and submit documents proving their constitution or incumbency whichever is the case. This law applies to direct sales or international tenders.
The FTA’s Government Procurement Chapter provides significant opportunities for U.S. companies to supply their goods and services to the Colombian government with strong procedures that apply to the conduct of the procurement. At the same time, the agreement’s government procurement rules ensure that certain U.S. business sectors – such as small businesses or textile companies bidding on Department of Defense procurement – continue to receive the same protections they have in other agreements, and also ensure that U.S. environmental and labor safeguards will be maintained. For more in depth information refer to the U.S. Trade Representative’s U.S.-Colombia Trade Agreement webpage.
As a general rule, all individuals and legal entities wishing to enter into contracts with state entities must register with the chamber of commerce in their jurisdiction in order to be qualified, classified, and rated in accordance with the provisions of Law 80.
Although Law 80 has made the government contracting system more dynamic, Colombia is still not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA) though they act as an observer to the GPA. There have been frequent, legitimate complaints of a lack of transparency and rule changes during the award of major government contracts.
Colombia is still struggling to refine the requirements of Law 80, which calls for open bidding in public tenders. Attempts are being made to amend the law to clarify procedures. Despite the law, transparency, fairness, and truly competitive bidding conditions in many tenders remain uncertain. The Colombian government is also resorting to auctions for the purchase of high tech or complex equipment or medicines. These factors continue to be significant market access barriers. U.S. companies interested in public sector contracts should obtain legal counsel in Colombia and contact the U.S. Commercial Service for assistance and possible advocacy.
Colombian military contracts above a certain amount (more than USD 1 million for equipment and more than USD 5 million for ammunition) require the foreign company to offer an “offset” proposal. Contact the U.S. Commercial Service for further information about this requirement.
Because of the FTA U.S. firms are given national treatment and for all federal government tenders U.S. companies are required to be treated the same as Colombian companies bidding on the tender.
U.S. companies bidding on foreign government tenders may also qualify for U.S. Government advocacy. Within the U.S. Commerce Department’s International Trade Administration, the Advocacy Center coordinates U.S. Government interagency advocacy efforts on behalf of U.S. exporters in competition with foreign firms in foreign government projects or procurement opportunities. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and inter-agency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves the U.S. Embassy or other U.S. Government agency officials expressing support for the U.S. exporters directly to the foreign government. Consult the Advocacy Center’s program web page on trade.gov for additional information.
Project Financing
The government and the Central Bank are important sources of funding for the financial system. The Central Bank, in addition to providing the usual discount facilities to support system fluidity, manages several special government funds to promote lending into a number of sectors that have been determined to be important to national development or economically essential. The funding comes from government capital, bonds, and current fiscal appropriations, if needed to cover deficits. Access to the funds tends to require considerable paperwork; applicants must qualify, and margins are limited. Their importance as a funding resource has diminished in recent years.
Leasing, domestic, and international (both operating and capital) financing are becoming popular, mainly because of tax benefits. Factoring and international credit insurance is available. Transactional financing is more associated with trade in consumer goods, while equity-based financing is more commonly used for project financing.
Colombian exporters have access to credit offered by the Colombian Foreign Trade Bank (Bancoldex). This credit is also extended to Colombian importers for industrial imports.
Foreign investors have full access to local credit. While the Colombian Government still directs credit to some areas (notably agriculture), credit is mostly allocated by the private financial market. Loans of foreign origin or foreign financing of imports are permitted.
Ex-Im: The Export-Import Bank of the United States provides a full range of services in Colombia. Ex-Im offers a range of loan, insurance, and loan guarantee programs to facilitate exports of U.S. goods and services to Colombian governmental and private companies.
DDFC: Development Finance Corporation is a U.S. government agency that supports, finances, and insures projects that have a positive effect on U.S. employment, are financially sound and promise benefits to the social and economic development of the host country. OPIC assistance is available for new investments, privatization, and for expansion and modernization of existing plants sponsored by U.S. investors.
IADC: The Inter-American Development Corporation provides development capital to export oriented companies in the agricultural business through “Corfisura Fondo de Desarrollo de Empresas,” Colombia’s first development capital fund in manufacturing, mining, and emerging technology sectors.
Additional multilateral agencies such as the International Finance Corporation (IFC), the Andean Development Corporation (CAF), the Export Import Bank of Japan, and USAID (as well as the development agencies from Japan and Canada) are actively providing financing for projects in Latin America and the Caribbean.
The Andean Development Corporation (Corporacion Andina de Fomento) is the only organization to provide major direct financing for green field projects in Colombia. The CAF has provided direct financing to the private sector for the development of green field projects in various infrastructure sectors.
Multilateral Development Banks
U.S. Commercial Service Liaison Offices at the Multilateral Development Banks (Inter-American Development Bank, World Bank)
The Commercial Service maintains Commercial Liaison Offices in each of the main Multilateral Development Banks, including the Inter-American Development Bank and the World Bank. These institutions lend billions of dollars to developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructural development. The Commercial Liaison Offices help American businesses learn how to get involved in bank-funded projects, and advocate on behalf of American bidders. Learn more by contacting the Advocacy Liaison to the World Bank or Advocacy Liaison Website to the Inter-American Development Bank (IDB)
The government and the Central Bank are important sources of funding for the financial system. The Central Bank, in addition to providing the usual discount facilities to support system fluidity, manages several special government funds to promote lending into a number of sectors that have been determined to be important to national development or economically essential. The funding comes from government capital, bonds, and current fiscal appropriations, if needed to cover deficits. Access to the funds tends to require considerable paperwork; applicants must qualify, and margins are limited. Their importance as a funding resource has diminished in recent years.
Leasing, domestic, and international (both operating and capital) financing are becoming popular, mainly because of tax benefits. Factoring and international credit insurance is available. Transactional financing is more associated with trade in consumer goods, while equity-based financing is more commonly used for project financing.
Colombian exporters have access to credit offered by the Colombian Foreign Trade Bank (Bancoldex). This credit is also extended to Colombian importers for industrial imports.
Foreign investors have full access to local credit. While the Colombian Government still directs credit to some areas (notably agriculture), credit is mostly allocated by the private financial market. Loans of foreign origin or foreign financing of imports are permitted.
Ex-Im: The Export-Import Bank of the United States provides a full range of services in Colombia. Ex-Im offers a range of loan, insurance, and loan guarantee programs to facilitate exports of U.S. goods and services to Colombian governmental and private companies.
DFC: Development Finance Corportion is a U.S. government agency that supports, finances, and ensures projects that have a positive effect on U.S. employment, are financially sound and promise benefits to the social and economic development of the host country. OPIC assistance is available for new investments, privatization, and for expansion and modernization of existing plants sponsored by U.S. investors.
IADC: The Inter-American Development Corporation provides development capital to export oriented companies in the agricultural business through “Corfisura Fondo de Desarrollo de Empresas,” Colombia’s first development capital fund in manufacturing, mining, and emerging technology sectors.
Additional multilateral agencies such as the International Finance Corporation (IFC), the Andean Development Corporation (CAF), the Export Import Bank of Japan, and USAID (as well as the development agencies from Japan and Canada) are actively providing financing for projects in Latin America and the Caribbean.
The Andean Development Corporation (Corporacion Andina de Fomento) is the only organization to provide major direct financing for green field projects in Colombia. The CAF has provided direct financing to the private sector for the development of green field projects in various infrastructure sectors.
Financing Web Resources
Colombian Ministry for Foreign Affairs
Colombian National Tax and Customs Directorate (DIAN)
Advocacy Liaison to the World Bank
Advocacy Liaison Website to the Inter-American Development Bank (IDB)
Export-Import Bank of the United States
Development Finance Corporation
U.S. Trade and Development Agency
SBA’s Office of International Trade
USDA Commodity Credit Corporation
U.S. Agency for International Development